Investors seeking high income from equity investment trusts can now get their hands on 19 trusts with a historical dividend yield greater than 4 per cent, many of which are trading at discounts to net asset value (NAV).
BlackRock World Mining Trust (BRWM) remains the highest-yielding trust, with a yield of 9.4 per cent, but that has fallen in response to a recovering share price. In January the trust was yielding 12.5 per cent following a bruising year in which the commodities rout took its toll on shares.
The majority of trusts are now yielding less than they were in January and discounts have narrowed across the board, reflecting "the rise in equity markets and fund share prices since the low point in February", according to broker Stifel.
Murray International Trust (MYI)*, for example, now yields 4.9 per cent, down from 6.2 per cent in January, but has also moved from a narrow discount to a premium of 7.7 per cent, above its 12-month average 1.6 per cent premium, according to Winterflood. That demonstrates investors' continued interest in the trust despite recent underperformance. The trust had underperformed over the previous two years, but has recently experienced a strong uptick, so that over the past six months its NAV total return is up 10.2 per cent.
High yields are a tantalising prospect in a time of low interest rates and low returns, but they can signal ravaged share prices and potentially unsustainable payouts.
When we analysed investment trust dividends in January 2016 Aberdeen Asian Income (AAIF)* and Schroder Income Growth Fund (SCF) were among those with the best-protected dividends covered by earnings. Trusts with a large chunk of dividend covered by revenue reserves included BlackRock Latin American Investment Trust (BRLA) and Schroder Oriental Income (SOI)*.
The Merchants Trust (MRCH) and Murray International were looking less well covered, with earnings cover of less than one. And BlackRock World Mining and JPMorgan Global Emerging Markets Income (JEMI)* had reserve cover of less than 0.3 times.
Stifel says Schroder Income Growth, on a 4.4 per cent yield, still benefits from a dividend covered fully by earnings. It is trading at a 7.2 per cent discount according to Winterflood. However BlackRock World Mining is due to cut is dividend, reducing its future yield. It maintained a final dividend to December 2015 of 14p but the board announced its intention to cut the dividend at the end of last year in response to payout cuts from mining companies. A 25 per cent dividend cut would equate to a prospective 2016 yield of 7 per cent.
City of London Investment Trust (CTY)*, managed by Job Curtis, has a yield of 4.2 per cent, a good long-term track record and a 50-year record of annual dividend increases.
Funds primarily investing in equities with a dividend yield above 4.0%
| Trust | Historical dividend yield (%) | Discount (%) |
|---|---|---|
| BlackRock World Mining | 9.4 | -12.3 |
| Henderson Far East Income | 7.1 | -2.8 |
| Merchants Trust | 6.1 | -4.9 |
| European Assets | 6 | -0.3 |
| Aberdeen Asian Income | 5.4 | -8.1 |
| Dunedin Income Growth | 5.4 | -9.0 |
| JPM Global Emerging Markets Investment Trust | 5.4 | -3.2 |
| Henderson High Income | 5.2 | 3.1 |
| Murray Income | 5.0 | -6.7 |
| Murray International | 4.9 | 7.9 |
| Baring Emerging Europe | 4.6 | -13.4 |
| BlackRock Latin America | 4.4 | -9.6 |
| Securities Trust of Scotland | 4.4 | -5.9 |
| Schroder Oriental Income | 4.4 | 0.8 |
| Schroder Income Growth | 4.4 | -7.2 |
| City of London | 4.2 | 2.1 |
| JPMorgan Claverhouse | 4 | -9.1 |
| JPMorgan European | 4 | -6.7 |
| Scottish American | 4 | 8.1 |
Source: Stifel. Includes: trusts primarily investing in listed equities.
Excludes: trusts with market capitalisations of less than £80m and with multiple share classes. Discount/premiums based on estimated fair value NAVs (ex-revenue) at close on 23/05/16.
NAV performance figures based on diluted NAV and fair value are capital return only.
Source: Datastream
